Impact of the BC Carbon Tax on Sectoral GDP and Emissions

Abstract

This paper develops a difference-in-difference model to quantify the sectoral impact of the implementation of the revenue neutral carbon tax in British Columbia, aimed solely at reducing carbon dioxide emissions in the province. The GDP analysis includes 119 sectors, sub sectors and special aggregates and finds a statistically significant impact for 58 sectors. The Emissions analysis includes 59 sectors and emissions categories and finds a statistically significant impact for 31 of them. Aggregate GDP is estimated to have declined by 1.25 billion dollars that is attributed to the carbon tax, in response an estimated emissions reduction of 2.451million tonnes of CO2 is achieved in British Columbia. Another methodology employed to check for robustness is the construction of a counter factual using ARIMA modeling.